Finance, Markets  |  FEBRUARY 15, 2013 11:17AM

Ringgit in volatile trade as elections loom

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The ringgit was expected to stay volatile in the near term due to political uncertainty as Malaysia heads into its most hotly contested elections ever, after a bout of weakness due to stronger U.S. economic data.

On Friday, the ringgit opened on the upside at 3.09 per dollar, but the headline news that prime minister Najib Razak may dissolve parliament “very soon” pushed ringgit down to trade at the day’s low of 3.108 ringgit to one US dollar, led by offshore players, industry sources said.

“The upcoming elections will introduce some volatility but this could be short-lived,” Yeah Kim Leng, chief economist at RAM Holdings Berhad said. “Once we get out of that event, we will see some improvement.”

Yeah said that RAM expected the ringgit to appreciate to 2.90-2.95 per dollar, backed by Malaysia’s economic fundamentals. For the whole of 2012, the ringgit went below the RM3 mark only once, on February 29, when it traded at 2.99 per dollar, according to Bloomberg data.

The ringgit has already had a volatile start to 2013. Earlier this year, ringgit was one of the best performing Asian currencies when it strengthened to 3.01 per dollar in mid January. Two weeks later, it slumped to a five month-low of 3.12. The market has started to rise a little this week to trade back at 3.09/3.10 levels.

Malaysia’s economy likely expanded 5.5 percent in the last three months of 2012 from 5.2 percent in the preceding quarter, according to a Bloomberg survey, before data due on Feb. 20. Last week, the Statistics Department said that Malaysia’s exports fell 5.8 percent to RM57.27 billion in December 2012 from a year ago, the weakest since August. The country achieved a total trade of RM1.31 trillion last year, with exports growing 0.6 percent to RM702.2 billion and imports by almost 6 percent to RM607.4 billion.

RAM’s economist Yeah said that this was “within expectations.”

“If anything, it’s the usual general elections story that’s driving the market lower,” a trader with a European Bank said.

A forex trader with a Malaysian bank said that technically, further weakening of ringgit cannot be ruled out.

“We are looking to see if it falls back to the 3.114 levels reached on Jan 31. If it breaks that, then it could go to 3.12-3.135 levels,” he said.

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